When facing a potential conflict of interest, in journalism, as in finance, it’s good to err on the side of disclosure.
The Financial Post, the business section of Canada’s National Post and that country’s answer to The Wall Street Journal, went the other way this summer and kept its readers in the dark about the paper’s relationship to the subject of two of its stories. That bad decision came back to haunt the paper and, in our view, hurt its credibility.
In late July, Diane Francis, a prominent Post columnist, wrote two columns that cast Fairfax Financial Holdings Limited, a Canadian insurance and financial-services company, in a positive light. One took Fairfax’s side in a long-running and controversial dispute the company has had with short sellers. The other was a largely uncritical question-and-answer session with Fairfax Chief Executive Prem Watsa.
Not mentioned: Fairfax owns a significant stake in the National Post’s parent company, Canwest.
Francis and her editor both say it wasn’t necessary to disclose that because Canwest’s voting shares are controlled by the Asper family. If only it were that simple.
The saga begins with a July 28 column by Francis headlined “Fairfax Financial beats bad markets.” In it she interviews Watsa about his successful bet against credit markets, which has resulted in a wave of cash for the firm this year. At the time, the shares were languishing (though they’ve jumped more than 20 percent since). The questions, except for one about an investigation by the Securities and Exchange Commission into alleged accounting irregularities at Fairfax, weren’t exactly hard-hitting, including this one:
What’s the latest with the short selling attack mounted a couple of years ago against Fairfax by several hedge funds in the U.S.?
Three days later, Francis mentioned Fairfax again in a column headlined “Wall Street shorts ruin markets” and took its side in a lawsuit against what it alleges was a conspiracy by hedge funds (the short sellers mentioned in the headline) and analysts to drive down its share prices with false rumors.
The column itself would have been fine as an opinion piece and fits into a larger school that opposes short-sellers, who borrow a company’s shares and bet that they’ll fall, so they can buy them at a lower price and collect the difference. (The fact that shorts lately have been proved right time after time during the current financial crisis is as beside the point as it is true.)
If Francis wants to hold that opinion, it’s okay with us. But she should disclose her paper’s connection to her subject.
True, disclosure can take some of the impact out of a piece, since readers might mentally discount an opinion that coincides with the interests of the publication’s financial backer. And true, disclosure is annoying. We find it annoying, for instanced, that we feel compelled to mention that we’re partly funded by a short-selling hedge fund, Kingsford Capital Management. We’re also funded by long investors, as well as people and institutions that aren’t investors at all, as well as Columbia. Unlike the situation with the Post writing about its part owner, Kingsford has nothing to do with this story. Still, there it is. Forget we mentioned it.
In an email exchange, Francis told us Fairfax’s stock ownership of Canwest was “irrelevant. The stake is tiny—the Asper family controls the empire through” multiple-voting shares. (Like The New York Times Company or the old Dow Jones, say, Canwest has multiple tiers of stock that allow the original owners to control the company without owning most of the shares. That’s because each of their shares gets multiple votes.)
Francis compares writing about Fairfax to writing about a company who advertises in the paper. “There is no conflict any more than there would be a conflict writing about a bank or other corporation that advertises in any of the Canwest media properties,” she says. She also says it isn’t necessary to disclose it because it’s so widely known. “Editors felt that biz readers know that,” she says.
Ian Karleff, the Financial Post’s managing editor, uses similar reasoning to explain why it’s not necessary to disclose Fairfax’s stake in his paper’s parent. “It’s a passive investment as far as we know,” he says. “I’d think there are a lot of individuals that own a stake in Canwest. If it got to the point where they actually had control or were on the board we would disclose it.”